Question

On July 23 of the current year, Dakota Mining Co. pays $7,282,080 for land estimated to contain 9,336,000 tons of recoverable ore. It installs machinery costing $1,773,840 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 481,250 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.

  
Required:

Prepare entries to record the following. (Do not round your intermediate calculations. Round "Depletion per ton" to two decimal places and round all other answers to the nearest whole dollar.)

(a) To record the purchase of the land : Record the cost of the ore mine of $7,282,080 cash.
(b) To record the cost and installation of machinery: Record the cost of the machinery of $1,773,840 cash.

(c) To record the first five months' depletion assuming the land has a net salvage value of zero after the ore is mined:

Record the year-end adjusting entry for the depletion expense of ore mine.

(d) To record the first five months' depreciation on the machinery.

Record the year-end adjusting entry for the depreciation expense of the machinery.

Answer 1

Answer:

	Date	Account title and explanation	Debit	Credit
a	July 23	Land	$7,282,080
		Cash		$7,282,080
		[To record purchase of land]
b	July 25	Machinery	$1,773,840
		Cash		$1,773,840
		[To record the cost and installation of machinery]
c	Dec 31	Depletion expense [$7,282,080 x (481,250/9,336,000)]	$375,375
		Accumulated depletion		$375,375
		[To record the depletion expense]
d	Dec 31	Depreciation Expense [$1,773,840/5 years] x 5/12	$147,820
		Accumulated depreciation		$147,820
		[To record depreciation expense]